$1.5 Billion Targeted for Struggling Homeowners

(March 1) -- Housing finance agencies are anxiously awaiting a small windfall to help some 125,000 struggling homeowners in five states hardest hit by the housing market crash.

President Barack Obama announced the $1.5 billion infusion for housing agencies in Arizona, California, Florida, Michigan and Nevada, where home values have fallen more than 20 percent from the peak 2006 and 2007 markets.

Looking for their share, state officials are scrambling to come up with the required program proposals that target unemployed homeowners, so-called "underwater" homeowners with homes worth less than their mortgage and homeowners struggling with second mortgages.

State housing agencies engage in public and private partnerships to promote affordable housing and community economic-development activities. Low-cost loans, grants, education and other efforts typically target needy low- and moderate-income households.

The $1.5 billion will be withdrawn from funds set aside for housing under the Emergency Economic Stabilization Act of 2008. The money is earmarked for state agency programs that reduce so-called "preventable" foreclosures. The U.S. Treasury must approve any programs before they begin.

Programs can vary, but mortgage modification has been the primary tool to help homeowners stay in their homes. A mortgage modification occurs when the lender reworks the terms of an existing home loan, typically to lower payments and make the home more affordable. To get the payment down, lenders lower the interest rate, extend the loan term, reduce the principal (rarely) or use any combination of these approaches.

Treasury estimates are putting the cost of modifying troubled loans at approximately $12,000 each, which would provide help to about 125,000 homeowners. Nationwide, there are some 1.5 million homeowners in need of help.

"I've got to again repeat: Government can't stop every foreclosure," Obama cautioned in announcing the housing aid during a town meeting last month in the Las Vegas suburb of Henderson, Nev. "There's not enough money in the Treasury to stop every foreclosure. And we shouldn't be using tax dollars to reward the same irresponsible lenders or borrowers who helped precipitate the crisis.

"During these difficult economic times, we will work to help responsible homeowners stay in their homes and stabilize the housing market so home values can rise," the president added.

Las Vegas had the nation's highest metropolitan-area foreclosure rate, with one in every 82 housing units receiving a foreclosure filing in January, according to RealtyTrac. The high Vegas foreclosure rate came despite a nearly 2 percent decrease in foreclosure activity from the previous month and a nearly 21 percent decrease in foreclosure activity from January 2009, RealtyTrac reported.

Four of the states sharing in the $1.5 billion assistance have the nation's highest foreclosure rates. One in every 95 Nevada housing units received a foreclosure filing during in January, more than four times the national average. The rate was one in every 129 for Arizona, and one in 187 for both California and Florida. Michigan's foreclosure rate was 1 in 258 and not among the top five, according to RealtyTrac.

"We are really excited and grateful for this help, and we intend to hit the ground running as soon as we know how much we will receive," said Evan Gerberding, assistant director of marketing for the California Housing Finance Agency.

"We have a loan modification program in place, but we will develop new programs to help borrowers who are unemployed or under-employed or are underwater, because that's the administration's goal," Gerberding added.

A formula for allocating the funds among the five states will be based on home price declines and unemployment.

Housing finance agencies must submit programs that target struggling homeowners, as well as affordable-housing programs. Funded programs and programs' efficacy ratings will be posted online to promote transparency and accountability.